Late last week, the Department of Education released its annual update on student loan default rates. Not surprisingly, the overall two-year default rate shot up from 8.8 to 9.1 percent over the course of the last year, and the Wall Street Journal, New York Times, and other news outlets all ran stories highlighting yet additional evidence of the poor economy and job market, and their impact on recent college graduates. The release also gave more ammunition to critics of for-profit colleges, who cite higher default rates among students who attended these schools (full disclosure: I work for a company that owns for-profit colleges including Walden University, whose default rate is a third of the national average for all colleges).

But what’s really telling about this data is how much it does not tell us, particularly when college costs continue to soar, student indebtedness has surpassed $1 trillion, and the total amount in default owed to the government exceeds $75 billion. While the Department (especially since it is now the sole originator of federal student loans) sits on copious data about who these borrowers are, all it releases is information about a subset of them who default in the first two and three years of repayment (the latter time frame introduced just this year). The Department estimates that over 20 years, 17 percent of borrowers who entered repayment in 2009 will default. Further analysis of this data is limited to comparisons of default rates across sectors. Should it come as a surprise that the default rate for a community college in Michigan is worse than Amherst College? Probably not, but even comparing different community colleges in Michigan to extend the analogy is limited.

That’s because the Department does not release loan default rates broken down by student demographics. If we want to know if default rates are related to Pell grant status or the type of major or course of study a student pursued, that, too, is not released by the Department as part of its loan default analysis. If Latino students, who are more debt averse (according to studies by the Institute for Higher Education Policy and Excellencia), default at greater rates, you won’t learn that from the Department’s analysis. Similarly, if older students are more likely to avoid default than younger students, that too is not revealed.

Two years ago, the indefatigable Mark Kantrowitz released this paper examining the relationship between Pell status and loan default. The results demonstrate that Pell students are significantly more likely to default (though students attending for-profit colleges are still more likely overall to default). What does this mean? Not that we should reduce access for Pell students, but perhaps we ought to target more aid counseling for these students or pursue other interventions. For example, Education Sector released a paper on what some HBCUs are doing to reduce student loan defaults given this sector too struggles with higher default rates. Similarly, if students under 25 are more likely to default, targeting enhanced assistance to these students might be beneficial.

The point is we don’t know what we don’t know. And without better data from the federal government on student borrowers, we will remain in the dark about how best to remedy excessive student debt. While an improved economy and job market would certainly help, any industry with this level and amount of defaults would want to know more than we do currently. Higher education should be no different.

Tom Dawson is member of the Education Sector K20 Task Force and executive director of product management for Laureate Education. Dawson’s writing focuses on higher education issues, with a special focus on college costs, technology, and innovation.

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With the bankruptcy law reforms, what does it really mean to track student loan default rates anyhow? They can't be discharged except in the rarest of circumstances. This is a huge issue, and I don't know how we'll come to a resolution as a society.

Crimson Wife - look at the FAFSA. It asks about gender but not about race/ethnicity. That type of demographic slice wouldn't be available for default rates on federal loans.

Crimson WifeOctober 2, 2012 at 12:48 am

The reason that data is not publicly released is that it would be politically embarrassing if there are certain demographic groups overrepresented among defaulters. If all racial/ethnic groups had similar default rates, then I'm certain that information would be public already.

This evidence would suggest that more and more bad loans have been originating in this industry in the last ten years, and if this in any way resembles the mortgage crisis that led to the Great Recession, then both the credit-worthiness of borrowers and the motives and probity of lenders have to be examined. Or we could simply adopt a different model, like that of northern Europe, where students earn qualifications that entitle them to three years of publicly financed higher education, depending on their continuing to make as satisfactory progress in college as they have made in secondary school.

peter cooksonOctober 1, 2012 at 11:34 am

These are excellent and thoughtful comments about a huge issue affecting the future of the country. The escalating cost of higher education is putting many students at risk of not developing their talents.